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Seven Global Car Maker’s KPI’s Part 2: Sales Revenue

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Global car sales turnover was estimated at $10Tn for 2017 so the revenue figures for individual global car makers are correspondingly large. With sales revenues counted in billions it’s easy to overlook nuances. Three factors are worth keeping in mind; first, revenue per vehicle is important not simply vehicles or revenue. This is calculated by dividing revenue by vehicle sales in units, preferably at a brand and region level, if the data is available. Second, for global carmakers, vehicle prices – and through them, total revenue – is impacted by foreign currency exchange rates. For some periods an manufacturer may be advantaged or disadvantaged due to FX rates and these can have a significant impact on revenues at home and abroad (See earlier post). And, third, the value of revenue over time is changed by inflation.

Revenue:

It’s self-evident that top-line revenue growth indicates that a car maker is still attracting buyers successfully. However, it’s the customer perception of value that fuels the attraction. The ‘perception of value’ is driven by two groups of factors: prices in local currency (i.e. original currency prices coupled with FX effects) and product factors (i.e. product specification and brand). In a global market where premium brands are making smaller, more affordable vehicles and budget brands are simply making better products, it’s often those in the middle that get squeezed. How did the 7 car makers in our survey fare? Among them – Daimler, BMW, Ford, GM, FCA, Toyota and VW – the average annual revenue growth was 6.6% between 2011 and 2017. Given that global sales grew at a little more than half that rate (3.7%) suggests that some of these car makers were able to raise volume, if not prices.

X Rates US$, Euro and RMB 2007 – 2016

Euro v. US$ v. Chinese Yuan Foreign Exchange rates were an important factor for all global exporters in the period from 2007 to 2017 because these are the currencies of the ‘Triad’ markets – the most important vehicle markets on the planet. In broad terms, the US$ grew in strength against both the Euro and the Chinese Yuan up until 2013/2014. After 2014 both the Euro and the Yuan began to strengthen in value in relation to the dollar. The practical effect of this is simple: up until 2013/2014 US buyers had to spend more dollars to buy European cars and Chinese goods. After that they needed to spend less dollars for the same priced item. At the same time, dollar-denominated products were less expensive to buy in Europe or China. Against the Euro, in 2011, the US$ was worth around 70cents. By the close of 2017 it had risen over 36% to 95 cents. The impact was to make European vehicles relatively cheap for the period from 2011 to 2014 – easier for Euro denominated sellers to export into the USA and, conversely, harder for US$ denominated sellers to sell into the Eurozone. The exchange rate situation with the Chinese Yuan was similar in cause and effect, except that the weak Yuan made exports from both the US and the Eurozone into China more expensive and vice-versa at least in the early years. The Euro has fallen 21% against the Yuan since 2007. So the export advantage of China has lessened somewhat. Of course these FX headwinds did not simply impact on the NAFTA and Eurozone areas. The currency imbalance helped or hindered one party or another in all competitive vehicle markets around the world. So, in reviewing revenue it’s useful to consider where and when that revenue ocurred and the helping or hindering effect FX may have had on the carmaker concerned.

Daimler derived 40% of its revenue from the Eurozone and 20% from the US and China in 2011. By 2017 the combined US and China contribution had risen to 30%. A super result but, for most of the period, the balance of FX-rate advantages were with the Euro which helped. Daimler sales revenue grew at 9.2% during that 5-year period – slightly lower than their unit sales growth rate (9.74%). However, on an inflation-adjusted basis revenue grew a little faster – 9.9% in real terms in the last 5 years. Revenue per car remained stable across the entire 2007 – 2017 period, growing below 0.25%. Considering that Daimler expanded their compact car offering, maintaining average revenue is a significant achievement. It looks as if the ‘New-Generation Compact Cars’ were priced as high as their much larger predecessors were but that their technology

BMW vs. MB 2007 – 2016: $ Revenue per Unit

and specification more than matched the customer’s perception of value. That may not have been the case in every market, however. The 2015 fine of $56MN imposed on Daimler for price fixing in China suggests that Daimler may have been offsetting falling prices in some markets with price hikes in others. (PS: Audi and Fiat-Chrysler were also fined and a total of 6 car makers ‘voluntarily’ agreed to lower their prices). BMW grew revenue by 6.5% (in inflation-adjusted terms 7.1%) over the 2011 – 2017 period – slightly lower than their unit sales growth – which reflected a negligible fall in average sales revenue per unit. The trend in the recent gap between the two car makers in the absolute value of revenue per unit will be worrying Mercedes-Benz. Even though the BMW revenue includes MINI, the revenue gap per unit has widened. That suggests BMW is achieving higher wholesale prices than their main rival.

Between 2011 and 2017 Ford grew revenue at 2.3% – lower than their sales growth rate – also reflecting a small drop in revenue per unit. Ford’s emphasis on smaller cars and higher incentives payments in 2014 to 2017 may also have depressed their revenue per unit. But the underlying concern is surely that, during the US car market surge between 2011 and 2015, Ford was unable to break away from a weakened GM. That chance may not come again in the near future. GM experienced a similar trend. Revenue grew by 2.1% while revenue per unit was flat. One background factor for both the US automakers is that inventory levels grew sharply from late 2015 as sales began to soften, even with higher incentives. GM’s dealer stock levels rose around 30% in 2017 so that average supply reached over 100 days. Ford’s grew to 83 days and Fiat-Chrysler reached 93 days in the US. Only Toyota US managed to keep its stock levels at or below the 60-day benchmrk. The worry may be that none of the US majors – if FCA’s US operations are included – have been able to lower their fixed costs and break-even point. They may still have too much production capacity for their market share. Most observers put this down to their use of ‘absorption costing’ which weakens the pressure on management to eliminate under-performing assets quickly enough, although it’s also true that over-capacity is a global, not just a US issue – see this post.

Fiat-Chrysler achieved the highest revenue growth rate of all carmakers in the survey – 13.3%, almost double the average for the group and over 4 times their sales growth in units. Thanks to Cars Italy its clear that regional growth has been uneven over the period. FCA sells over 50% of its units in NAFTA, 30% in Europe and a dwindling 10% in Latin America. Sales to China and the Far East account for less than 3%. The US has long been its main sales engine but growth there has stalled since 2014. Fortunately, Europe has taken up the slack. However, FCA’s real success has been Maserati and Ferrari, where unit sales have trebled since 2011 and, in 2016, approached 40,000 units.

Toyota reported the second highest revenue growth rate in the group for the last 5 years – 8.4% annual average – about 25% higher than its unit sales growth rate. But this masks significant competitive pressure in Europe for Toyota as the budget and premium segments expand at the expense of the volume market. Taking the entire period from 2007 to 2017 Toyota has shown less than 1% unit and revenue growth.

Volkswagen saw its revenue grow 6.4% in the 5 years to 2017, ahead of its unit growth rate and leading to an increase in revenue per unit. However, performance is variable in key regional markets: Europe has regained stability at around 1.7MN units since the “dieselgate” scandal; the US remains in the doldrums with sales of around 300,000 to 400,000 units; China is VW’s growth engine with units now exceeding 3MN per year. Undoubtedly, its core strength is VW’s brand portfolio and position at the heart of the EU. This has helped it fend off competitors in the Eurozone while expanding globally by exploiting its brands. Seat, for example, exports to 80 countries. Skoda has recognition in Eastern Europe and the CIS. It has two premium brands – Audi and Porsche – as well as super-lux, Bentley, and exotics – Lamborghini and Bugatti. Given that the premium segment and above is expected to grow very fast, only more self-inflicted wounds should slow them down.

Keep in Mind

Sales revenue in total cannot be viewed in isolation. First, it’s linked closely to volume. So, revenue per car is worth calculating. Second, keep an eye on FX rates and inflation. Its much easier to expand sales into a region when there is a built in currency advantage. The weakness of the Korean Won helped Hyundai-Kia export cars to the Eurozone back in the first decade of the new millennium and helped European car-makers export into the US later. And, over the long term, recalculate the revenue to see the real rather than nominal growth rate. Third, where did the revenue come from – which markets and which segments or models. FCA illustrates the positive but distorting effect of selling a few thousand super-luxury cars on the firms ‘average’ numbers.

Scoring Points:

Based on the analysis, what ranking should be awarded for each car maker in terms of sales revenue? Rank 1 is the top and rank 7 is at the bottom. Here’s my selection.

Volkswagen #1. Volkswagen takes this position due to resilience based on its brand portfolio. It seems that they can shake off significant customer and political problems and still sell cars, often at higher prices than before. Their ‘achilles heel’ is the US were they struggle to sell half a million units. However, their positioning in the EU and China plus their hold in smaller markets via their brand portfolio just give them my vote on this KPI

Toyota #2. Toyota is only just squeezed into second place. Both VW and Toyota have ‘Triad’ market weakness. In the case of Toyota it’s China; in the case of VW its the US. Both have bounced back from significant consumer problems in recent years – Toyota product re-calls and VW’s ‘Dieselgate’. But, Toyota does not have such a wide global footprint and brand portfolio as VW, so they drop into the number two position.

Daimler: # 3. Daimler achieved above-average revenue and sales unit growth, for the group, and maintained revenue per car while down-sizing it’s offer. That’s why they took third place in my opinion. On the other hand, BMW launched more new products lines earlier. Both had FX rates on their side exporting to the US and China

BMW: #4. BMW didn’t quite grow as fast – especially in China – and suffered a marginal drop in revenue per car. But, it looks as if BMW is close to surpassing MB’s traditional pricing advantage. – for years MB products have been priced higher than BMW…but the BMW and MB transaction prices may have converged.

Ford: #5. Ford is ranked marginally ahead of GM, although both are beset by similar ‘legacy’ issues – over-capacity, out-dated vehicle technology, failure to stay attuned to the European market. What sets Ford apart is that it began internal product re-structuring much earlier than GM and has stayed with it for much longer. FX rates in the 5 years since 2011 have not given any US car maker a benign environment.

GM: #6. GM is ranked marginally behind Ford but, the management turn-around since 2009 is remarkable. It still sells more than 10MN cars, even with the loss of the European markets. Given that the major growth up to 2025 will be in the Asia-Pacific-China markets, it is still placed for growth. The underlying worry is that GM only signalled a change in its product engineering in 2014 – much later than its rivals. Can it generate enough funds to make the investments needed to catch up. Probably…but it will be close.

FCA: #7. FCA are the stand-out leader in terms of sales growth and revenue per car. However, the growth in revenue per car seems mostly due to the growth in Maserati and Ferrari sales and its global sales are limited to specific brands or sub brands. For example, sales in China are overwhelmingly Jeep and sales in the US are Jeep and Ram. Chrysler sold less than 250,000 units in 2016 and 188,000 in 2017. The lack of breadth and appeal must be worrying for FCA’s management as they set ambitious targets for their brands in 2018.

This post, the second in a series, shows you how to analyze a car makers sales revenue from different angles in a business and financial assessment. It uses recent data on seven global car manufacturers and evaluates the patterns, ratios and trends from a dealer’s standpoint. It shows each car makers relative strengths and weaknesses based on the information.

The seven car makers – Daimler and BMW, Ford and GM, Volkswagen, Toyota and Fiat-Chrysler Autos (FCA) – are reviewed for the period 2007 up to 2017. Morningstar and the car makers own published figures provided the financial data. OICA provided the global sales numbers to create the benchmark. Car Sales Base provided the data on carlines in each market. The focus is on the trends in global sales in units looked at overall and, where data is available, by model series and major regional market – Europe, US and China.